Historically, activity surrounding the monthly expiration of Bitcoin futures and options (BTC) has been accused of weakening the bullish momentum. A few 2019 studies found an average 2.3% drop in the price of BTC 40 hours before the CME futures contract settlement date.
However, as TBEN reported in June 2020, the effect has worn off. While 2020 seems to have dismissed the potential negative impact of CME expirations, so far the current year seems to validate the theory. The price of Bitcoin was removed before futures and options expired in the first three months of 2021.
Some investors and traders have pointed out that Bitcoin’s incredible rally after the recent futures and options expiration dates has become a trend.
$ BTC options expire in about 8 hours …
The last Friday of each month has been a very good entry point for the past 8 months …
The price of the last 3 months was hammered in the hours / days before expiration
Observation not advice. Let’s see if the model holds. pic.twitter.com/3CJqI6m6jl
– 阿龍 (@KnutsonJesse) April 23, 2021
BTC did recover in the days following the expiration, but broadening this analysis reveals a less than satisfactory trend.
Three consecutive events do not prove a trend
The past 13 months have been nothing short of spectacular for Bitcoin, with the cryptocurrency posting gains of 788%. August 2020 turned out to be the worst month, with BTC showing a negative performance of 7.5%. So choosing random starting points over the month will likely show a similar positive trend.
For example, if one uses the “last quarter” moon phase as a proxy, the chances of a rally taking place after each event are very high.
As described above, indeed, Bitcoin rallied after five of the last six instances. The only conclusion might be that positive trends are the norm rather than the exception during bull runs.
While there may be an explanation as to why Bitcoin was underperforming at the end of the month, these are only assumptions.
While market makers and arbitrage bureaus could benefit from removing the price after a rally, other forces, including leveraged long futures and call option holders, would balance out. that.
The price of Bitcoin has not fallen in three of the last seven expirations
Therefore, it makes sense to analyze the potential price compression before expiration instead of looking for explanations for a rally during a bull market.
The October and December 2020 expirations presented no negative pressure prior to these dates. Meanwhile, the 12% positive performance over the five days leading up to the last April 30 expiration also puts a big question mark on the real significance of the CME event.
Given that there was no price drop before the monthly futures and options expired in three of the last seven cases, this evidence should put a nail in the coffin of unfounded myth.
As mentioned earlier, trying to develop theories as to why sellers acted more aggressively on specific dates is unlikely to yield results.
As noted above, the price of Bitcoin has not underperformed in three of the last seven expirations. A 57% success rate should not set a trend when a positive performance after a specific date has been found to be common in a bull run.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of TBEN. Every investment and trading move involves risk. You need to do your own research when making a decision.